The Gazette 1994

GAZETTE

APRIL 1994

Emi gra t i on - A Taxing Ma t t er

by Richard Grogan, Solicitor.*

will be determined by agreement between the Irish and UK tax authorities 5 . For practitioners advising clients who return to Ireland from the UK, section 267 UK Inheritance Tax Act, 1984 introduced "deemed domicile" which provides an individual will be treated as domiciled in the UK for capital transfers (i.e. lifetime gifts) if:- a. he was domiciled in the UK within the last three years prior to a capital transfer, j b. he was resident in the UK in not less than 17 of the 20 fiscal years ending in the fiscal year in which a capital transfer was made. Ireland after a prolonged period in the UK. UK Capital Taxes differ from our CAT in that it is the tax status of the donor and the value of the property being transferred which determines the tax liability, irrespective of the relationship of the donee to the donor, This deemed domicile is important for Irish nationals returning to live in (unless the donee is the donor's spouse where special exemptions apply). Transfers between spouses in both the UK and Ireland are exempt from UK Capital Tax and Irish CAT unless the transferor's spouse is domiciled in the UK (this includes deemed domicile) and the transferee spouse is domiciled elsewhere, in which case the exemption from UK tax is only £55,000 stg. There is no deemed domicile provision for a transferee spouse in this situation. Residence Irish tax law is principally based on the residence of an individual. There is no legislation defining what residence is. An individual will be deemed to be resident in Ireland for the purposes of a potential tax liability if, firstly, he resides in the State for six months in any year of assessment 6 . This is a period of six calendar months not 183 days 7 . A six months

Residence and domicile are vitally important concepts in our tax code. These concepts concern practitioners more frequently as clients become more mobile and leave Ireland either temporarily or permanently to take up employment abroad. Emigration has been an aspect of our socio-economic national life since the famine. In the past our emigrants left and rarely returned. Nowadays, due to the ease of international travel and the opportunities of fixed short-term foreign employment contracts, emigrants will often return to visit or to take up Irish residence again on the termination of a foreign employment. As practitioners we are called upon to advise these clients as to their tax exposure to Income Tax, CAT, CGT, Residential Property Tax and Probate Tax. Their tax treatment falls to be determined by reference to their domicile, residence or ordinary residence. This is the area which causes the greatest difficulties but once this matter is clarified their tax treatment is reasonably straightforward 1 . Domicile An individual acquires a domicile of origin at birth 2 . Citizenship and domicile while normally going hand in hand, may not always be the position. On reaching 18, an individual may acquire a domicile of choice. This is obtained by an individual going to a country other than his domicile of origin with the intention of permanently residing there. If that individual ceases to reside there or to intend to permanently reside there, then the domicile of origin is re-acquired unless a different domicile is acquired 1 .

Richard Grogan

There are three general rules for an individual's domicile. Firstly, no individual can be without a domicile, secondly, an individual may have only one domicile at a time and, thirdly, a domicile once acquired is presumed to continue until a new domicile is acquired except in the case of a domicile of origin being acquired. Deemed Domicile The concept of "deemed domicile" or "fiscal domicile" is (unlike "domicile" which has no statutory basis) solely the result of legislation and is to an extent a legal fiction. The double taxation agreement between Ireland and the UK is an example of attempting to deal with the area of fiscal domicile. The Revenue authorities in different countries have different rules for determining fiscal domicile. In the case of an Irish or UK citizen, the Revenue authorities will firstly determine his domicile status by reference to national law 4 . If this results in an individual having a deemed or fiscal domicile in both states (for tax purposes), the question is determined by reference successively to permanent home, personal and economic ties, habitual abode and nationality. In default of any clear determination, the matter

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